network atm rules and protecting the payment system
TRANSCRIPT
October 19, 2007
Kevin Carroll Senior Business LeaderDebit Channel Management
Network ATM Rules and ProtectingThe Payment System
October 19, 2007 2
Agenda
• History of ATM Rules– Issuer
– Acquirer
• Emerging Trends to be Addressed
• What’s the End Game
October 19, 2007 3
• Issuer
– Card Production
–Encoding
– PIN Generation & Issuance
– Card Expiration Dates
– 3DES
– Key Management
– EMV
– Data Storage
History of ATM Rules
October 19, 2007 4
• Acquirer
– Transactions Supported
– Transaction Flow & Chaining
– Encryption
–3DES
–Hardware
– Receipt Content
– Fees/Surcharging
– Data Storage
History of ATM Rules
October 19, 2007 5
• Acquirer
– ATM Owner Agreements
– ISO Registration
– Key Management
History of ATM Rules
October 19, 2007 6
Agenda• History of ATM Rules
– Issuer
– Acquirer
• Emerging Trends to be Addressed
• What’s the End Game
October 19, 2007 7
• Acquirer
– Transaction Velocity
–Balance Inquiry
• Chip
– Canada
– Mexico
– Globe
Emerging Trends to be Addressed
October 19, 2007 8
Chip Features and Benefits
Card AuthenticationTo Combat Counterfeit Fraud
Cardholder VerificationTo Authenticate the CardholderTo Combat Lost/stolen Fraud
Storage & Processing CapabilitiesFlexibility
for Adding New Services
Card Risk ManagementTo Improve Cardholder Risk & Reduce Costs
October 19, 2007 9
Core EMV Migration Benefits:Fraud Reduction
Chip provides powerful means of ensuring:
• That the card is the genuine item– Card Authentication Method (CAM)
– Based on data stored securely in the chip
– Protects against counterfeit fraud
• That the person using it is the true owner– Cardholder Verification Method (CVM)
– Usually based on a PIN
– Protects against lost & stolen card fraud
October 19, 2007 10
Rationale for Migrating to Chip
• The global* card payments industry is in the process of migrating its base technology from magstripe to chip
• This represents an unprecedented opportunity for banks to grow and differentiate their card business
* the USA is the only market which is yet to set a schedule for migrating to chip
October 19, 2007 11
EMV in an ATM environment
The following items should be considered when implementing EMV in an ATM environment:
• Online CAM Message Support
• Application Selection
• Offline ATM
• Offline CAM
• Offline PIN support at ATMs
• Script Processing
October 19, 2007 12
Drivers for Migration to M/Chip
• Improved Credit Control
• Operational Cost Reduction
• Value Added Opportunities and Differentiation Potential
• Fraud Reduction and Prevention
October 19, 2007 13
Chip & PIN around the world
• France: world’s lowest fraud with the highest level of offline transactions
• UK: 67% fraud decrease.
• Malaysia: reduction in counterfeit fraud of 12 basis points.
Source: MasterCard Safe Data
October 19, 2007 14
Experience in France
26
121135
153170
190204
220
107100
90817872
675849
39
0,27
0,16
0,11
0,17
0,08
0,020,020,030,030,04
0,020,030,03
0,04
0,035
0,12
0,050,04
0,00
50,00
100,00
150,00
200,00
250,00
1987198819891990199119921993199419951996199719981999200020012002200320040,00
0,05
0,10
0,15
0,20
0,25
0,30
Card Payments (Billions €) Fraud Rate on payment transactions (%)
1st CHIP MIGRATION
Billions €uro
%Fraud Rate (%) CB Card PaymentsCB Card Payments
(billion (billion €€uro)uro)
EMV MIGRATION
2005
237B237B€€
0,03%
The French experience with Chip is the deepest. They reduced their fraud from 27bps to 3bps
Source: MasterCard Safe Data
October 19, 2007 15
France – Issuing Impact of Chip/PINFraud Trends
Q104
Q204
Q304
Q404
Q105
Q205
Q305
Q405
Q106
Q206
Q306
Q406
Q107
Total
Domestic
X-Border
Source: MasterCard Safe Data
October 19, 2007 16
Early Experience in UK
Counterfeit Index
100200300400500600700800900
10001100
1997 1998 1999 2000 2001 2002 2003
Industry
Barclays
47% CAGR
30% CAGR
Value (£m) 1997 1998 1999 2000 2001 2002 2003 SumDifference 0.0 1.3 3.1 7.5 13.9 22.7 37.3 85.6U
NIT
ED K
ING
DO
M
In 2003 Barclaycard experienced a 50% reduction compared to Industry and brought down the Industry average
Source: MasterCard Safe Data
October 19, 2007 17
United Kingdom - IssuingImpact of Chip/PIN Migration Fraud Trends
Q104
Q204
Q304
Q404
Q105
Q205
Q305
Q405
Q106
Q206
Q306
Q406
Q107
Total
Domestic
X-Border
Chip Roll-out
Source: MasterCard Safe Data
October 19, 2007 18
UK and ATM Fraud
• UK nearing 100% Chip and PIN environment
• Significant increase in the level of ATM fraud in foreign markets without Chip and PIN infrastructure
• Since January 2007 – no fall-back to magnetic stripe at ATMs
• Attention switch to foreign ATMs
• Direct link between the level of counterfeit fraud acquired at foreign ATMs and the level of EMV introduction in these countries.
October 19, 2007 19
2005 2006
Lost and stolen fraud Down 22% Down 23%
Counterfeit fraud Down 25% Up 3%
Mail-not-received fraud Down 45% Down 62%
BUT Card Not Present fraud (CNP) Up 21% Up 16%
The overall total Down 13% Down 3%
Chip and PIN reduced losses £60m £80m
Following the introduction of Chip and PIN in the UK, there were two unexpected outcomes: cross-border counterfeit and card-not-present fraud grew.
APACS Fraud Experience Following the Introduction of Chip and PIN
October 19, 2007 20
0
2
4
6
8
10
12
14
16
18
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
£ M
illio
ns
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
'05
'06
Gro
wth
04-'05 05-'06 05-'06 Growth
Source: MasterCard Safe Data
Upon further investigation we discovered that the counterfeit fraud is happening in a largely preventable way. Card data is skimmed inthe UK and fake plastics are used at ATMs in non-chip locations
Cross-border Counterfeit Attacks
Best Practices to mitigate
• MasterCard has mandated a different CVC for chip and magnetic stripe
• Cut off the points of compromise
Fraud on UK Issued Cards at Overseas ATMs
October 19, 2007 21
MalaysiaIn Malaysia the Government mandated a very fast migration. The counterfeit fraud was reduced from nearly 14 bps to 1 or 2 bps
0
200000
400000
600000
800000
1000000
2003
-01
2003
-02
2003
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2003
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2003
-05
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2003
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2003
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2003
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2003
-10
2003
-11
2003
-12
2004
-01
2004
-02
2004
-03
2004
-04
2004
-05
2004
-06
2004
-07
2004
-08
2004
-09
2004
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-11
2004
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2005
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2005
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2005
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2005
-08
**200
5-09
US
$
0
4.8
9.6
14.4
19.2
24
Bas
is P
oint
s
Acq Counterfeit Fraud Acq Total Fraud Acq Total BP Acq Counterfeit BP
Source: MasterCard Safe Data
October 19, 2007 22
Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07Card Not Present Counterfe it Lost/Stolen
Fraud in A/P Region
CNP
CFT
Other
L/S
Shift in fraud from Counterfeit (CFT) to Card Not Present (CNP) in A/P region (attributed to Malaysia and other EMV implementations)
Asia/Pacific FraudAsia/Pacific Fraud
Source: MasterCard Safe Data
October 19, 2007 23
Q104
Q204
Q304
Q404
Q105
Q205
Q305
Q405
Q106
Q206
Q306
Q406
Q107
CFTL/SCNP
Domestic Fraud
Chip Roll-out
Source: MasterCard Safe Data
Malaysia - IssuingImpact of Chip Migration
October 19, 2007 24
Q104
Q204
Q304
Q404
Q105
Q205
Q305
Q405
Q106
Q206
Q306
Q406
Q107
Domestic
X-Border
Source: MasterCard Safe Data
Malaysia - Issuing Impact of Chip Migration
ATM Fraud
October 19, 2007 25
Chip in the Americas
• Canada: The first INTERAC chip transactions will begin to take place in fall 2007, as part of a market trial in Kitchener-Waterloo, Ontario, being carried out in collaboration with Canada's major credit card companies.
• Mexico: About one million EMV chip cards had been issued in Mexico at end-2003 and the country’s EMV migration is to conclude by end-2007, when all cards are to be chip-based.
October 19, 2007 26
Observed Fraud Trends
• The trend in global issuing fraud indicates rising cross-border Counterfeit and domestic Card Not Present fraud
• Cross-border fraud has increased dramatically in countries that implemented chip
• In the United Kingdom, domestic Counterfeit and Lost/Stolen fraud are migrating to domestic Card Not Present fraud
• The United States is showing increasing cross-border ATM fraud trends as in the United Kingdom
• CNP trends continue unabated in Thailand, the United Kingdom, and Italy
October 19, 2007 27
What does it mean for the US?Chip Pilot in
Canada
Mexico Chip Implementation
Europe embraces
Chip
More Focus on Chip in
Asia
October 19, 2007 28
Agenda• History of ATM Rules
– Issuer
– Acquirer
• Emerging Trends to be Addressed
• What’s the End Game
October 19, 2007 29
• There isn’t one
– Fraud continues to develop new approaches
Networks will continue to develop new approaches to rules and technology to combat fraud and ensure the integrity of the global payment network
What’s the End Game
October 19, 2007 30
Thank you.